Can Health Care Be Disrupted? Warby Parker Offers a Clue

(John D. Stoll | Wall Street Journal) – Earlier this year, I needed a new pair of glasses, and instead of trekking down to my optometrist, I decided to give Warby Parker’s trendy offerings a try. The glasses maker has an app that allows customers to take an online vision test.

But I quickly ran into a snag: I live in Michigan, one of 11 states where so-called telemedicine products like app-based vision tests are illegal. I would need to see an optometrist after all if I wanted new glasses.

My experience spotlights one of the biggest questions facing the new economy: Can the same disruptive forces reshaping retail and entertainment really take on the entrenched $7 trillion health-care sector?

The question is looming as digital giants like Amazon.com , which recently paid $1 billion for online pharmacy PillPack Inc., make new forays into the health-care business.

For customers, Amazon’s move into the pharmacy business could mean more convenience in filling prescriptions. For Amazon, it will also mean facing a thicket of regulations that often protect incumbents and obstruct change.

Consider Warby Parker’s attempts to shake up a healthcare procedure that has barely changed in the last century: the routine eye exam. In states where online vision tests are legal, the entire process for getting a pair of eyeglasses can be conducted from an iPhone at the kitchen table with Warby’s PrescriptionCheck app. These online tests are critical to the company’s blueprint for disruption.

Other firms have developed competing online tests, which, like Warby Parker’s, work with doctors who accept online tools and will verify results within a day or two. Opternative Inc.’s software, for instance, is offered to third-party online sellers (Framegenie.com, for example) and is particularly helpful for contact-lens users who have to make routine purchases.

Opternative estimates that online tests have cut the price of an eye exam by more than two-thirds in some cases. University Health Plan estimates the average cost for an exam, lenses and a frame is $541 nationally; Warby Parker’s soup-to-nuts service is typically under $200.

Founded by four Wharton classmates in 2010 trying to find a cheap and fast way to replace glasses, Warby Parker has grown into a company valued at around $1 billion. It thrives on being different, saying its full-length mirrors in their nearly-75 stores and willingness to send five frames to your house to try on have won the hearts of young people on a budget looking for nerdy specs.

The optical industry’s online sales have jumped 100% since 2011, according to The Vision Council, a nonprofit trade association. Still, the $2 billion sold online in 2017 is 6% of the broader $32.5 billion market.

Optometrists have not universally welcomed the online trend. Many have worked with legislators and a network of national and local professional associations to outlaw online tests in certain states. These states hold 20% of the U.S. population and include Maryland, New Jersey, Georgia and South Carolina.

Warby Parker co-founder Neil Blumenthal told me in an interview last week that responding to legislation pushed by opponents, particularly the American Optometric Association, is like “playing a game of whack-a-mole.”

Opternative has also been fighting. Its head of government relations Pete Horkan said there have been showdowns in about 25 states over the past two years alone. Each one costs the companies tens of thousands of dollars in lobbying or legal costs.

This puts optical startups in the same types of battles that Uber Technologies Inc. has faced with taxi drivers or Tesla Inc. has encountered with car dealers.

I called Tom McMillin, a former state representative in Michigan who represented my district to figure out what happened in Michigan. He was one of just two lawmakers to side in favor of the telemedicine providers in 2014.

“I still think of that vote and what a rip-off it was for consumers,” Mr. McMillin said. But he said these types of regulations can zip through the lawmaking process for a variety of reasons, including the timing of when a bill is introduced or the amount of lobbying that takes place ahead of voting.

Optometrists collect more than 60% of revenue from eyeglass and contact-lens sales, according to a study conducted by CareCredit, a subsidiary of Synchrony Financial providing financing for medical bills. Getting patients in the chair as frequently as once-per-year is a primary way to steer them toward buying products on their shelves.

But optometrists also take issue with the safety of online tests. Statements from the American Optometric Association and state organizations say that the technology that an app or computer relies on (known as refraction) doesn’t represent a comprehensive survey. They could miss the emergence of glaucoma, for instance, or diabetes.

Warby Parker and Opternative say their tests should be used as a supplement to conventional office visits and not as a replacement. They tell users to follow the types of testing guidelines set by the American Academy of Ophthalmology.

Opternative’s Mr. Horkan says “we’re not a vessel that is going to drive optometrists out of business.”

Warby Parker is also rapidly expanding its physical retail footprint, a strategy that adds risk and overhead for a company that thrives on being nimble.

Having spent years playing whack-a-mole, the upstarts are hatching plans to challenge the state legislation that bars their innovation.

“We’ve had a really aggressive presence on defense the last two years,” Mr. Horkan said. “I’m very prepared to go on offense.”

Their progress will be something for Amazon and other companies looking to shake up health care to keep at least one eye on.

Related Items

Free Market Contacts is an educational project of Citizen Outreach, a non-partisan IRS-approved 501(c)(4) organization. It is not associated or affiliated with any political party or group. Free Market Contacts is accessible by the public at no cost. It funds its operations through contributions from donors and supporters and does not accept government money or grants.